Tax credit looks like a hit; here’re nuts & bolts to make it work for you

It’s to all our benefit to spread the word. Feel free to forward this explanation to as many producers as possible.

The wage tax credit act (SB 785) enacted by the Illinois legislature last year and which went into effect Jan. 1, 2004, looks like it’s going to regenerate feature/TV production in Illinois after a lengthy drought ? and boost spot production, too.

In fact, the Illinois Film Office’s Bob Hudgins noted that the office has been deluged with a sudden surge of scouting requests as details of the wage tax credit reached Hollywood’s inner circles.

At a select meeting held Jan. 26 at the Sofitel Hotel, Paul Caselton, Illinois Dept. of Revenue general counsel, income tax division, came up from Springfield to tell some 60 local producers and production managers how they may benefit from the tax credit.

Introduced to the industry for the first time was Joyce Davis, the IFO’s diversity officer, whose political background is in state government, primarily in Springfield, and not in the local film industry as black filmmakers had urged.

Davis said hiring minorities would be a component to the wage tax credit. Production companies must be also be willing to promote diversity by hiring or having as interns a percentage of minorities. While the law does not establish quotas, it does require a good faith effort to encourage diversity of hiring, she explained. (There was also the assumption that Davis might be the go-to person for tax credit applications and information.)

The tax credit is not refundable, meaning: the useful amount of the credit is limited to the amount of Illinois income tax that the recipient of the credit would otherwise pay in the year in which it is used.

Caselton explained there are basically two ways to use the credit:

1) The production company can use it entirely itself, if it has sufficient tax liability, or, 2) it can form a partnership with another entity that has sufficient liability to use the credit.

For the partnership option, the partnership agreement would be structured in such a way that the entity with liability would have the right to the tax credit, and the production company would receive compensation from the other partner in exchange for the tax credit.

For example: An L.A. production company enters into a partnership with an Illinois company (which could be a company or a private individual) for the purpose of obtaining the tax credit.

The partnership agreement would specify that the Illinois partner is entitled to keep 100% of the credit once it is awarded, and the L.A. production company gets a certain amount of compensation from the Illinois company in exchange for the tax credit.

In this scenario, the partnership would be the official applicant for the final tax credit certificate. Once the transaction is completed, the partnership would be dissolved.

The L.A. production company would have up to two years after the end of the project to submit its application for the final tax credit certificate. They would have the same two-year period in which to form a partnership, if that’s the route they chose.

Of course, the same type of partnership would work if it involved an Illinois production company and another Illinois entity.

The tax credit is equal to 25% of the production’s eligible wage expenditures. All Illinois resident labor is eligible; i.e., all labor directly involved in the production, including performing talent, postproduction, caterers, subcontractors, etc.

The maximum eligible per-employee wage is $25,000. The minimum threshold of wage expenditures to make a project eligible for tax credit is $50,000 for a project less than 30-minutes, and $100,000 for 30-minutes or more. And the way the law was written, wages for the first two highest paid Illinois residents do not count.

In addition to the surge in out-of-town interest recognizing cost-saving benefits to filming in Illinois, several local commercial companies have requested applications for wage tax credits.

Download application at